Key Highlights
- Shares of H&M declined by up to 6.6% Thursday following disappointing March sales projections
- First quarter operating profit reached SEK 1.51 billion, surpassing analyst predictions of SEK 1.39 billion
- March sales growth projected at 1% in constant currency terms, falling short of consensus estimate of approximately 1.8%
- Gross margin improved to 50.7%, exceeding anticipated figure of roughly 50.1%
- Chief executive highlighted concerns that extended Middle East hostilities may generate inflationary pressures affecting consumer spending
Shares of H&M (HMb.ST) tumbled by as much as 6.6% Thursday, retreating to price levels comparable to those recorded prior to the spring collection debut, as market participants responded negatively to a softer sales projection for the immediate period ahead.
The Swedish fashion retailer delivered a 26% year-over-year increase in operating profit for the first quarter, reaching SEK 1.51 billion ($162 million), which exceeded analyst consensus expectations of SEK 1.39 billion. This achievement represented the company’s third consecutive quarter showing profit growth.
Gross margin reached 50.7%, outperforming the anticipated level of approximately 50.1%. Net income available to shareholders totaled SEK 724 million, marginally above projections. Diluted earnings per share came in at SEK 0.45, aligning closely with consensus forecasts.
Morgan Stanley analyst Grace Smalley characterized the financial results as “largely in line with investor expectations,” attributing the EBIT outperformance “primarily driven by gross margin.”
First quarter sales measured in constant currency terms decreased by 1%, matching closely with consensus projections for a 0.6% decline. Year-over-year inventory levels showed a 5% reduction when measured in constant currency.
March Projections Fall Below Analyst Expectations
The profit outperformance failed to prevent a selloff triggered by forward-looking guidance. Management indicated March sales would likely increase by just 1% in constant currency. Analyst consensus had anticipated growth of approximately 1.8% for the second quarter.
Alphavalue analyst Jie Zhang described the projection as “somewhat disappointing,” particularly given management’s earlier positive commentary regarding customer response to the spring collection.
CEO Daniel Erver emphasized positive aspects of the spring merchandise. “Towards the end of the quarter our well-received spring collections contributed to a positive sales trend, which also continued into March,” he stated.
Inderes analyst Lucas Mattsson maintained a measured outlook. “We don’t expect any particularly strong sales growth in 2026, precisely because they haven’t showed any clear trends or patterns on that yet,” he commented.
Geopolitical Tensions Create Additional Risk Factors
The Iran conflict emerged as a discussion topic during H&M earnings communications. Erver indicated the military situation has generated minimal direct impact on H&M operations thus far. The retailer maintains limited presence in the Middle East region, where store operations function through franchise arrangements, and primarily utilizes sea and land transportation methods rather than air freight.
The CEO identified potential secondary consequences as a concern. “A continued conflict, such as with continued high energy prices, will create inflationary pressure on a consumer who already has tough inflationary pressure,” Erver explained.
British retail competitor Next stated earlier Thursday that the military situation would probably weaken consumer demand while simultaneously elevating operational costs and retail prices.
H&M confirmed it maintains vigilance regarding evolving circumstances and their potential effects on international commerce, adding that the company’s adaptable supply chain infrastructure provides flexibility to modify logistics operations when circumstances require.
Morgan Stanley’s Smalley indicated she anticipated additional clarity from the earnings conference call, suggesting “potential indirect implications from the Middle East conflict likely a focus of Q&A.”
The retailer faces comparable year-over-year comparison periods throughout April and May, suggesting near-term sales momentum will remain modest.
